Violation of the Fair Trade Law by 3M Taiwan Ltd. for Colluding with Its Distributors in Setting Resale Prices
Chinese Taipei
Case:
Violation of the Fair Trade Law by 3M Taiwan Ltd. for Colluding with Its Distributors in Setting Resale Prices
Key words:
abrasives, concerted actions, maintenance of resale prices, obviously unfair acts, product price list
Reference:
Fair Trade Commission Decision of October 29, 1997 (the 313th Commission Meeting); Letter (86) Kung Erh Tzu No. 8603294-007; Letter (86) Kung Erh Tzu No. 8603294-008
Industry:
Non-metal ore products manufacturing industry (2150)
Relevant Laws:
Summary:
1. 3M Taiwan Ltd. [hereinafter referred to as “3M”], the distributor of "Black Wheel," faxed to the end users of the said product during January and February 1997 a price list of various types of Black Wheel. Some of the recipient end users reported to the Commission that 3M and its distributors might have violated the Fair Trade Law by jointly determining the resale price so as to avoid price competition among the said distributors.
2. The investigation indicated that Black Wheel was a type of non-woven abrasives, mainly used to chip off old paint and remove rust gathering on the surface of metals. As its abrasive effects on auto surface was better than other types of abrasives, Black Wheel was widely used at auto repair shops for processing the surface of automobiles. According to the investigation, on 23 January 1997, 3M invited three distributors of Black Wheel, i.e., Hsingpo, Sanmei and Hushing, to attend a performance review meeting, where the three distributors made comments on the rampant price cutting among the distributors and suggested a reasonable “paint shop price” (i.e., the price at which the distributors sold to paint shops) and a reasonable retail price (i.e., the price at which the distributors sold the product to auto repair shops) be set with a view to stabilizing the transaction prices in the market. 3M agreed with such proposal and through discussion with the said participating distributors reached a consensus on the end price of the particular product. On the next day following the meeting, 3M developed a price list based on the consensus reached by the four parties participating in the said meeting and affixed its company name on it, and then gave the list to the three distributors so that they could inform their clients, e.g., paint shops and auto repair shops, about the changed prices, which came into effect starting 16 February 1997.
3. While 3M set the paint shop price and the retail price for Black Wheel, they were followed in principle by its distributors, according to the investigation. Moreover, the price competition among the distributors had lessened since the announcement of the price list. It was obvious that 3M's act of developing the price list did result in a vertical restraint on the prices at which the distributors sold the said product. Notwithstanding 3M‘s defense that the price list was merely for reference and was not binding, the sanction in respect of retail price maintenance is not a requirement of Article 18 of the Fair Trade Law; accordingly, any restriction by the upstream enterprises on the downstream enterprises' freedom of price-setting constitutes a violation of the said Article. In view of the great disparity in the economic strength of 3M and its distributors and their long term relationship of dependency, 3M's act of developing such a price list certainly affect the distributors' sale prices of the products in question, thus leading to a restraint on price competition among the distributors. Therefore, 3M's act of making and disseminating a price list of Black Wheel was found to be in violation of Article 18(1) of the Fair Trade Law.
4. Furthermore, the setting of resale prices came as a result of the downstream distributors' efforts to have uniform prices for the product as well as their discussion with the upstream supplier and a meeting of minds in connection with the prices. The above acts did not constitute a violation of Article 14 (concerted actions) of the Fair Trade Law since the said product did not have a significant share of the abrasive market and the demand-supply mechanism was hardly affected. However, under the anti-trust laws of other counties, concerted actions, collusion or cartel is in principle illegal per se for the culpability attributed to such act. Among them, price collusion has been identified to have the purpose and effect of restricting competition without positive economic benefits, i.e., a naked restraint. According to the investigation, the price collusion with regard to Black Wheel conducted by 3M and the three distributors was by its nature a naked restraint. In light of the market situation, where the said product has considerable position in the secondary market of auto surface abrasives due to its distinctiveness, the price collusion would soon jeopardize the interests of the consumer and then destroy the mechanism of intra-brand price competition, posing a great impact on the order of trade. Therefore, considering the high culpability of the said price collusion, the objective of the Law to safeguard the order of trade, and the legal rights and interests of the consumer, the Commission found 3M, Hsingpo, Sanmei, and Weihsing, by jointly setting the resale prices of Black Wheel, violated Article 24 that prohibits obviously unfair practice with adverse effects on the order of trade.
Summarized by Liu, Hsi-jung
Supervised by Yang, Chia-chun
Appendix:
3M Taiwan Ltd's Uniform Invoice No. 11833655
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